UPDATE 1-US Congress to vote on transportation, student loan bill

* Bill covers transportation, student loans, flood insurance

* House, Senate votes set for Friday

By John Crawley and Roberta Rampton

WASHINGTON, June 28 (Reuters) - Congressional negotiators
have cleared the way for votes on legislation covering
transportation construction, student loan rates, and flood
insurance after finalizing a compromise agreement on how to pay
for those priorities.

The House and Senate were set to consider the measure on
Friday, one day before temporary funding for highway, bridge and
transit projects was to expire and three days before an increase
in federal student loan rates was set to take effect.

"We have a number of issues we're trying to work through,"
Senate Majority Leader Harry Reid said, expressing
disappointment that Congress would not act on the legislation
Thursday night. "That's the way it is."

Congress took more than two years to reach a transportation
bill covering millions of construction jobs, and did so only
because the potential consequences of inaction in a shaky
economy proved too risky in an election year.

Ambitious proposals to shore up U.S. infrastructure gave way
to a bill that basically keeps transportation funding at current
levels. The blueprint was based on a bipartisan proposal by the
Democratic-led Senate that is supported by the Obama
administration.

The federal government spends more than $50 billion annually
on road, bridge and transit construction projects. The measure
heading for approval, barring an unforeseen development, would
cover spending for a little more than two years.

The last transportation bill expired in 2009 and
construction programs have survived since then through a series
of short-term funding extensions. The current extension ends on
Saturday.

One of the most liberal senators worked with one of the most
conservative to convince other lawmakers to accept the deal,
defying analysts who had predicted Congress in an overheated
political climate would again settle for a short-term funding
option rather than a longer-term bill.

"This agreement provides stability and flexibility for the
nation's transportation planners," Democratic Senator Barbara
Boxer, who chaired the negotiations, said in a statement.

Senator James Inhofe, the top Republican on the Environment
and Public Works Committee, has been credited with working with
fiscally conservative House Republicans to find common ground.

"As with any compromise, we didn't get everything we wanted,
but I believe we truly have a good bill - one conservatives can
be proud to support," Inhofe said.

The resolution was praised by business groups like the U.S.
Chamber of Commerce. But environmental interests were unhappy
that Republicans won some concessions on environmental reviews
of highway projects.

STUDENT LOANS, FLOOD INSURANCE

The proposal also includes a one-year, $6 billion fix to
prevent a doubling of interest rates on federal student loans to
6.8 percent on July 1, a jump that would have added costs for
many already pinched by steadily increasing education expenses.

Student loans for 7.4 million people cover the largest
component of household debt after mortgages. They rose 3.4
percent to $904 billion in the first quarter of this year,
compared with the final three months of 2011, the New York
Federal Reserve Bank said in a recent report.

Finally, the bill would extend funding for the National
Flood Insurance Program to September 30, 2017. It had been set
to expire at the end of July, in the middle of hurricane season.

The flood insurance program has been a political football in
Washington for years, particularly because of the unsustainable
debt load it took on in the wake of Hurricane Katrina in 2005.

Like the transportation law, the program has remained in
business through repeated short-term extensions.

Federal law requires that homes in designated flood-risk
areas have flood insurance before a mortgage can be completed.
Because the floor insurance program is effectively the only
flood insurance available in the United States, a lapse in the
program means home sales can not close in designated flood
areas.

Jettisoned in the final days of talks was a politically
charged plan pushed by House Republicans to defy President
Barack Obama and move ahead with the Keystone XL oil pipeline,
which would run from Canada to Texas.

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